Anatomy of a power play: Why Ray Lane left Oracle

REDWOOD SHORES, Calif.–For years, they were the odd couple of Silicon Valley.

Larry Ellison and Ray Lane, Oracle’s chief executive and president, were a study in contrasts: one the prototypical bad boy of high-flying technology moguls, the other a safe-and-steady operations guy. Despite persistent reports of tension, the unlikely pair seemed to have created a winning formula that saw the company through some of its most turbulent times.

But behind the scenes, sources within the company and beyond say Lane–once a trusted deputy who remained loyal to Oracle despite repeated advances from other companies–was essentially neutered over 18 months, until he finally could not stand the frustration and even humiliation of working for Ellison any longer.

“Three months ago, I told (Ellison), ‘You no longer consult with me or ask me about decisions.’ I asked him if he wanted me to leave,” Lane said in a series of interviews with CNET News.com this week. “He said: ‘No, we just need to communicate more. I want you to know what is in my head, and I want us to be seen in public more. We need to communicate more, so there’s no confusion among employees and customers as to what’s the company’s direction.'”

Then, while Lane was on vacation in Oregon on June 30, he said Ellison called “to tell me about more organizational and process changes like the way we’d give out options to executives. Again, it was a case where changes were going to be made under Larry’s game plan, and I disagreed with them. I told him it seemed like it was time for me to go. And he agreed. I think he called with the intent of me pulling the plug.”

His resignation was announced later that day, conspicuously absent of any comment from Lane.

Top-level moves such as this are nothing new to the high-tech business, which practically invented the concept of free agency in the white-collar world, and Lane is believed to be walking away from Oracle nothing less than a billionaire. But even the most jaded industry veterans have been fascinated by the monumental struggles behind the walls of Oracle’s compound here, ensconced amid a deceptively quiet bank of industrial parks halfway between San Francisco and San Jose, Calif.

The story of Lane’s plight at one of the most powerful companies in technology is one of hubris, greed, betrayal and personal epiphany–characteristics that have come to define the nucleus of Silicon Valley. Perhaps more than any other company, the $200 billion Oracle embodies the kind of gun-slinging cowboy image so often associated with the high-tech business, having long cultivated a cutthroat reputation that serves as a model for many enterprises today.

It is also a story of how quickly one’s fortunes can change in this hyper-competitive industry, regardless of track record. Only a few years ago, Lane was credited with helping Oracle recover from a disastrous accounting controversy that threatened the company’s future, and he wascourted repeatedly for CEO posts at major companies, including Hewlett-Packard, Compaq Computer and Novell.

Finally, it is a story about the Internet’s phenomenal impact on American businesses, forcing companies as enormous as Oracle and Microsoft to change courses seemingly overnight, leaving behind those who resist change or, in some cases, simply hesitate before completely overhauling their business strategies.

“I think Larry was excellent at motivating people when it came to articulating the company’s strategy and where he wanted the company to go,” one former Oracle executive said. “But the rest of his motivation was based on people’s fear and greed.”

Those familiar with Lane’s relationship with Ellison believed that it was only a matter of time before the Oracle veteran ended his tenure of eight years, even if it meant leaving millions of dollars in stock options on the table.

Sources say Ellison had become dismissive of Lane, calling high-level meetings without inviting him and, in one case, even telling a group of senior executives that they “report to me now and not Ray, and make no mistake about it.” When Lane did attend meetings, sources say Ellison would ignore his longtime partner in an embarrassingly obvious way.

Lane said Ellison, as chief executive, has the full right to lead in such an autocratic manner or any other way he sees fit. However, he added, “I can’t fit into this kind of system. I’ve got be one of the guys making decisions, and right now, the only person making decisions at Oracle is Larry.”

On one occasion, the newly engaged CEO stormed into Lane’s office and interrupted a meeting to “yell at him” for not telling Ellison about a contract that had been lost, even though it wasn’t a major deal, according to an Oracle source familiar with the incident.

In addition to such personal snubs, which Lane confirmed, Ellison diminished his role in a broader way through hierarchical reorganization and other structural changes. He elevated some of Lane’s subordinates to report directly to the CEO, and he took away responsibilities for entire areas of operation within Oracle, including support and education.

Lane said he doesn’t fault Ellison for the measures he took and fully understands the need for decisive action by a CEO when a company is undergoing fundamental changes. It simply wasn’t an approach that fit well with his personality.

“Over a year ago, Larry’s sole focus was on development and products,” Lane said in an interview last night. “But around January or February of 1999, he said he wanted to focus on the whole company. He felt he had to personally make every decision, whether it was human resources or what computer to buy.”

Lane was shut out of Oracle’s public dealings as well. Ellison began taking over press and Wall Street briefings on earnings reports and scheduling himself for keynote speeches.

“Ray did a good job while he was with Oracle. It’s just that Larry got interested in running the company again and took a lot of Ray’s duties,” said a source close to Oracle’s board of directors. “I don’t know what it was that got Larry interested again.”

Lane and others know exactly what rekindled that interest, and they say it could be summed up in one word that has haunted the 55-year-old Ellison for decades: Microsoft.

Those who witnessed the renewed crusade say the change in Ellison became obvious early last year, when he sensed blood in the water around the empire of his nemesis, Bill Gates. Microsoft did not understand the Internet, Ellison was heard to say often, and was particularly vulnerable to competition at the height of the federal antitrust case against the Windows juggernaut.

It was then that Ellison, who associates say once joked about the hours he spent playing tennis on company time, decided to reclaim the helm of the company he co-founded 23 years ago. In remaking Oracle into an Internet company, instead of one that made databases that ran within private company systems, Ellison could realize several ambitions at once.

Beyond simply expanding Oracle’s operations into new markets, Ellison could reignite the torch he has long carried in championing the concept of network computing, the idea that inexpensive, stripped-down terminals connected to a central network could better serve the masses because personal computers were too complicated and costly to operate. That would provide ammunition for a full-frontal assault on Microsoft, the company that he has long sought to unseat from its software throne.

Moreover, the campaign for an Internet Oracle–however dubious–would provide a new platform for Ellison, who has never shied from publicity.

Created long before the Internet became part of the public vernacular, the software manufacturer was churning out the necessary programs needed to house the massive inventories and internal files of companies ranging from automakers to travel agencies.

And while it made Ellison the world’s richest man at one point–worth an estimated $53 billion in April, surpassing even Gates–associates say the Oracle chief was always resentful that his company did not have the household recognition held by some of his high-tech rivals, namely Microsoft.

Anatomy of a power play: Why Ray Lane left Oracle(Continued)Oracle’s controversial espionage campaign was only the most recent evidence of Ellison’s apparent obsession with Microsoft. Those who have worked at Oracle say Ellison has pushed his product development teams to great lengths to build new software features to one-up the Windows maker, despite little customer demand for such technology.For example, Ellison pushed his developers to build a Windows NT-like file system and operating system kernel into Oracle’s 8i database so that customers would not have to use Windows NT. Months after those new features shipped, few customers reported using them.Some amateur psychologists in the business theorize that Ellison’s decidedly noncorporate exploits are related to this ego compensation. As much as his wealth and technical talent, Ellison has become known for his penchant for fighter jets, racing yachts and abundant romances.

“He built a $49 million house in Woodside. He dresses in Armani suits. Everything is first-class,” one associate said of Ellison, who is fond of recounting his Horatio Alger roots in the South Side of Chicago. “He is refined in mechanical ways, such as table manners, for a guy who was raised on the other side of the tracks.”

With Oracle’s Internet initiative, Ellison could attain both his personal goals and grow his company’s power base. At one point, Lane said, Ellison was so enthusiastic about his decision to run all facets of the company that he even discussed issuing a press release to announce the new Internet strategy and how he would serve as Oracle’s CEO–that is, until Lane reminded him that he already had that title.

The shared leadership under the troika of Ellison, Lane and chief financial officer Jeff Henley had changed: No longer would each run their respective areas–technology, sales and finances–with relative independence. No decision escaped Ellison’s attention, including who would receive the $150 employee recognition award. None of this sat well with Lane, who said he had grown accustomed to “running more than 80 percent of the company” on his own.

Not everyone was happy with Lane’s stewardship, however. He was fine at running day-to-day operations at a company whose direction had already been set, sources say, but his consensus style of management was too slow for Ellison’s Internet revolution.

As Oracle’s new charter gained momentum, Lane became increasingly marginalized. One source familiar with Oracle’s board said performance has improved since the transfer of responsibilities from Lane to others.

“As Larry dug deeper in the organization, he found performance was not as strong as he wanted it to be in certain areas,” the source said.

By some accounts, Lane himself may have planted the seeds of his eventual downfall as early as 1997. At that time, he said the plan was to run Oracle as two businesses, a consumer-focused network computing company and a business-oriented software company. That, obviously, did not work. Ellison saw things differently: Oracle owned the database market, and a large chunk of Internet businesses used its products–so it only made sense that Oracle should be seen entirely as an Internet company.

Shortly afterward, Ellison began taking a more active role in the company, evangelizing Oracle’s Internet strategy and engaging in one of his favorite pastimes, attacking Microsoft. The initiative has received mixed reviews, with some customers and analysts growing weary of the company’s arrogance, led by Ellison himself.

Even with a good dose of criticism, Ellison’s revived leadership has won praise in the industry and on Wall Street.

In one well-publicized move, he revamped the company’s internal operations using Oracle’s own business management software, reaping millions in savings and providing the ideal showcase for the company’s new Net technology. The subsequent launch of Oracle 8i, pitched as an Internet-savvy version of the company’s core database, along with revamped Net-centric business applications, helped boost sales and push the company’s revenue to record levels.

In the last 1-1/2 years, Oracle’s stock has risen more than fivefold. Trading near its 52-week high, it closed up slightly today at $75.81 a share.

Some speculated that Ellison was waiting for the right time to get Oracle’s house in order before allowing Lane to go. At the same time, others say Lane stayed as long as he did because he thought Ellison might lose interest in running the company full time.

“Larry has a history of getting involved and then uninvolved in business,” said a former Oracle executive. “In his sporting days of sailing or flying airplanes, he would disengage in business and then the business would drift down, and then he would re-engage and do all-nighters sometimes or work all weekend. Usually this would happen on two-year cycles.”

This source said Ellison was also notorious for his fickle nature. “He’s supportive of certain people at certain times, and then it takes a turn. Usually people will be in favor for about two years, and then you’re in the penalty box and then discarded.”

Ellison and Oracle spokesman Kevin McGuirk declined to comment on the CEO’s management style or Lane’s departure. But Oracle has a long history of losing talented executives, a trend that many sources attribute to intense internal politics.

Randy Baker, formerly executive vice president and a member of Oracle’s management committee, earlier this year filed a wrongful-termination lawsuit against the company. Pier Carlo Falotti, executive vice president of Oracle Europe, Middle East and Africa, left Oracle in May. Polly Sumner, former executive vice president, left in September last year and is now president of AlphaBlox.

Two other senior executives left in August 1998 after a reported struggle between Lane and Ellison: Robert Shaw, former executive vice president of vertical markets, left for USWeb/CKS, and Barry Ariko, former executive vice president of the Americas region, joined Netscape Communications as chief operating officer.

Today, a new breed of executives is being groomed. When Ellison, Lane and Henley began discussing a succession plan several years ago, they each submitted names of their best candidates. Sources said Ellison’s choice was Gary Bloom, a senior vice president of the system products division–a 40-year-old executive who many have identified as Lane’s chief antagonist within Oracle’s ranks. But Lane and several other former executives say it is unlikely that Bloom will ever be named to the top job.

“Gary is good at executing what Larry wants done. And right now, Larry wants those kind of people,” one former executive said. “But a CEO has to be able to think for themselves and make decisions, and right now, there are no such people at Oracle. The prospect of Gary being the future CEO died about a year ago.”

For Lane, the last few weeks have been a far cry from his early days at the company, when he was heralded as something of a savior.

A former consultant at Booz-Allen, Lane was hired by Ellison in 1992 shortly after an accounting debacle slashed Oracle’s stock price and shook investor confidence in the company. Lane was charged with the unenviable task of reorganizing Oracle’s sales force, which was known throughout the industry for ruthless tactics and indifferent customer service. He created a successful commission plan that rewarded sales representatives on a sliding scale to improve customer relations. Lane was universally credited with bringing a sorely needed professionalism to Oracle’s sales staff.

At 53 and with a young child, Lane decided that it wasn’t worth fighting to stay at Oracle any longer.

His departure did not come without a price: Lane is leaving behind more than $20 million in stock options expected to vest in July, and he’s passing up another 2.8 million options, worth nearly $210 million today, that he could cash in during the first quarter of next year.

But Lane already has roughly 12 million shares of Oracle, worth nearly $1 billion, according to a March filing with the Securities and Exchange Commission.

Now, Lane is looking for a different challenge and is interested in joining a large venture capital firm. But this time, he is looking for a part-time general partner position with a flexible schedule.